Financial Results for Fiscal Year Ending March 31, 2017 July 29, 2016 NEC Corporation (http://www.nec.com/en/global/ir) 1 NEC Corporation 2016
Index Ⅰ. Financial Results for, Ⅱ. Financial Forecasts for Financial Results for, (Appendix) Financial Forecasts for (Appendix) Reference * Net profit/loss refers to net profit/loss attributable to owners of the parent for the same period. 2 NEC Corporation 2016
Ⅰ. Financial Results for, 3 NEC Corporation 2016
Summary of Financial Results for Results Revenue Profit/Loss Free Cash Flows Note: Average Exchange Rates (yen) % to Revenue Income/Loss before Income Taxes Net Profit/Loss % to Revenue Actual <April to June> Actual 587.3 518.7-11.7% -7.6-29.9-22.4-1.3% -5.8% -4.4-33.7-29.3-5.6-20.1-14.5-1.0% -3.9% 80.9 63.7-17.2 USD 1 120.23 110.66 EUR 1 131.42 124.38 YoY Public Enterprise Telecom Carrier System Platform Others Adjustment Total Actual <April to June> Actual YoY Revenue 145.6 117.5-19.3% Profit/Loss 0.6-2.6-3.2 % to Revenue 0.4% -2.2% Revenue 68.6 66.5-3.1% Profit 3.4 3.7 +0.3 % to Revenue 5.0% 5.6% Revenue 143.1 121.1-15.3% Profit/Loss -2.4-6.9-4.5 % to Revenue -1.7% -5.7% Revenue 160.2 150.2-6.2% Profit/Loss 4.3-4.5-8.9 % to Revenue 2.7% -3.0% Revenue 69.8 63.3-9.3% Profit/Loss -6.2-8.4-2.2 % to Revenue -8.9% -13.2% Profit/Loss -7.3-11.2-3.9 Revenue 587.3 518.7-11.7% Profit/Loss -7.6-29.9-22.4 % to Revenue -1.3% -5.8% 4 NEC Corporation 2016
Public Business Results Billions of Yen (YoY) YoY Revenue 117.5 (-19.3%) Revenue 145.5 145.6-0.6% 117.5 Decreased due to a decline in large-scale projects for the central government in the previous fiscal year, and a decline in demand for the digitalization of fire and emergency radio in the public areas -19.3% Profit Ratio Profit/ Loss 0.4% 0.6 Profit/Loss -2.6 (-3.2) Worsened due to a sales decline -0.4% -0.5-2.2% -2.6 (J-GAAP) 5 NEC Corporation 2016
Enterprise Business Results Billions of Yen (YoY) Revenue 68.3 68.6 66.5 +25.5% -3.1% YoY Revenue 66.5 (-3.1%) Decreased due to a decline in large-scale projects in retail and services in the previous fiscal year, despite strong sales from manufacturing industries Profit Ratio 4.1% Profit 2.8 3.4 3.7 5.0% 5.6% Profit 3.7 (+0.3) Improved due to higher profitability in system construction services, despite a sales decline (J-GAAP) 6 NEC Corporation 2016
Telecom Carrier Business Results Billions of Yen (YoY) Revenue 142.6 143.1 121.1 YoY Revenue 121.1 (-15.3%) Decreased due to sluggish capital investment by domestic and international telecommunications carriers -5.6% -15.3% Profit/Loss -6.9 (-4.5) Worsened due to a sales decline Profit Ratio Profit/ Loss -2.3% -1.7% -5.7% (J-GAAP) -3.3-2.4-6.9 7 NEC Corporation 2016
System Platform Business Results Billions of Yen (YoY) Revenue 160.2 160.2 150.2 YoY Revenue 150.2 (-6.2%) Decreased in hardware -4.0% Profit/ Loss Profit Ratio 3.0% 2.7% 4.9 4.3-6.2% Profit/Loss -4.5 (-8.9) Worsened due to a sales decline and project lineup changes (J-GAAP) -3.0% -4.5 8 NEC Corporation 2016
Others Results Billions of Yen (YoY) Revenue 70.1 69.8-12.4% 63.3-9.3% YoY Revenue 63.3 (-9.3%) Decreased in the energy business Profit/Loss -8.4 (-2.2) Worsened due to a sales decline Profit Ratio -9.9% Profit/ Loss -8.9% -7.0-6.2-13.2% -8.4 (J-GAAP) 9 NEC Corporation 2016
Net Profit/Loss Change(Year on Year) Results -5.6 System Platform -8.9 Telecom Carrier -4.5 Adjustment -3.9 Public -3.2 Others -2.2 Enterprise +0.3 Profit/Loss -22.4 Financial Income/Costs, etc. -6.9 Financial costs -5.8 Financial income -1.3 Share of profit of entities accounted for using the equity method +0.3 Others +14.8-20.1 Income taxes +14.3 (including reconsideration of tax expenses through making Japan Aviation Electronics Industry a consolidated subsidiary +6.0) Non-controlling interests +0.5 10 NEC Corporation 2016
Notable Actions and Achievements Results Safety business: Won international projects and conducted trials in Japan Selected by CrimTrac, an Australian federal government agency, to provide national facial recognition and fingerprint matching capability Provided facial comparison technology at John F. Kennedy International Airport, USA Provided the local government of Shinagawa-ku, Tokyo, Japan, with a new security function which prevents information leakage caused by targeted cyber attacks <Notable Trials> Advanced security system utilizing image analysis technology (during the G7 Ise-Shima summit) Walk-through facial recognition system (at Narita Airport, Japan and NEC s head office) Payment service utilizing facial recognition (NEC s head office) 11 NEC Corporation 2016
II. Financial Forecasts for 12 NEC Corporation 2016
Summary of Financial Forecasts Forecasts Achieve 50.0 billion yen in net profit, continue an annual dividend of 6 yen per share Revenue Profit Net Profit Note: Average Exchange Rates (yen) % to Revenue % to Revenue Dividends per Share (yen) Actual Full Year Forecasts 2,824.8 2,880.0 +2.0% 91.4 100.0 +8.6 3.2% 3.5% 75.9 50.0-25.9 2.7% 1.7% 6.00 6.00 0.00 USD 1 120.75 105.00 EUR 1 132.99 115.00 YoY Public Enterprise Telecom Carrier System Platform Others Adjustment Total Full Year Actual Forecasts YoY Revenue 771.6 735.0-4.7% Profit 57.3 69.0 +11.7 % to Revenue 7.4% 9.4% Revenue 300.3 305.0 +1.6% Profit 23.9 19.0-4.9 % to Revenue 8.0% 6.2% Revenue 697.5 705.0 +1.1% Profit 46.5 48.0 +1.5 % to Revenue 6.7% 6.8% Revenue 728.6 755.0 +3.6% Profit 31.7 32.0 +0.3 % to Revenue 4.4% 4.2% Revenue 326.8 380.0 +16.3% Profit/Loss -18.2 1.0 +19.2 % to Revenue -5.6% 0.3% Profit/Loss -49.8-69.0-19.2 Revenue 2,824.8 2,880.0 +2.0% Profit 91.4 100.0 +8.6 % to Revenue 3.2% 3.5% 13 NEC Corporation 2016 *Forecasts as of July 29, 2016
Management Topics (1/2) Plan to commence tender offer for shares of Japan Aviation Electronics Industry, Limited (announced on May 31, 2016) Purpose: to make Japan Aviation Electronics Industry, Limited (JAE) a consolidated subsidiary of NEC (to strengthen IoT Solutions) Conditions precedent to the commencement of the tender offer: i. to complete the clearance under foreign and domestic anti-trust laws, and ii. JAE s board of directors duly and validly approves to express JAE s opinion supporting the tender offer and makes an announcement thereof Schedule: Aim to commence the tender offer around November 2016, but not yet determined Tender Offer Price: 1,920 yen per share of common stock Number of Shares to Be Acquired: 10,000,000 shares (Maximum) Purchase Price: 19.2 billion yen Note: This proposed transaction is not factored into the financial forecasts for. 14 NEC Corporation 2016 *Forecasts as of July 29, 2016
Management Topics (2/2) The recording of gain from the transfer of a portion of shares in an affiliated company accounted for by the equity-method (announced on July 1, 2016) Transferred Shares: 44,100 ordinary shares of Lenovo NEC Holdings B.V. (LNH), a joint venture with Lenovo Group Limited (Lenovo) that operates in the personal computer business (i.e. 90% of the ordinary shares that NEC holds in LNH) NEC will maintain a 33.4% voting ratio in LNH with the right to veto material corporate actions NEC will continue to engage in the personal computer business in alliance with Lenovo Transfer Date: July 28, 2016 Impact on Financial Results: This share transfer will result in approximately 20.0 billion yen in non-operating income in the consolidated financial statement for Q2, Note: This transaction is not factored into the financial forecasts for. 15 NEC Corporation 2016 *Forecasts as of July 29, 2016
Improve management speed and enhance execution power Achieve 50.0 billion yen in net profit (company forecast), continue an annual dividend of 6 yen per share 16 NEC Corporation 2016 *Forecasts as of July 29, 2016
18 NEC Corporation 2016
Financial Results for, (Appendix) 19 NEC Corporation 2016
Results for by Segment (two-year transition) Revenue Results Profit/Loss Public 586.6 587.3 Public 145.5 145.6 Enterprise 68.3 68.6 Telecom Carrier 142.6 143.1 518.7 117.5 66.5 121.1 System Platform 160.2 160.2 150.2 Others 70.1 69.8 63.3 Enterprise 2.8 0.6 3.4 System Platform 4.9 4.3 Public -0.5-3.3-2.4 Telecom Carrier Others -7.0 Adjustment -6.9-10.1-7.6-6.2-7.3 System Platform -29.9 3.7-2.6-6.9-4.5-8.4-11.2 (J-GAAP) (J-GAAP) 20 NEC Corporation 2016
Financial Results for by Segment Revenue Profit/Loss Results Others 12% Public 23% Enterprise 3.7 Profit/Loss for, -29.9 System Platform 29% Revenue for, 518.7 Telecom Carrier 23% Enterprise 13% Public -2.6 Telecom Carrier -6.9 System Platform -4.5 Others -8.4 21 NEC Corporation 2016
Revenue Change (Year on Year) Decreased due to a decline in large-scale projects in retail and services in the previous fiscal year, despite strong sales from manufacturing industries Results Decreased due to sluggish capital investment by domestic and international telecommunications carriers 587.3 Public -28.1 Enterprise -2.1 Decreased due to a decline in large-scale projects for the central government in the previous fiscal year, and a decline in demand for the digitalization of fire and emergency radio in the public areas Telecom Carrier -21.9 System Platform -9.9 Decreased in hardware Others -6.5 Decreased in the energy business 518.7 22 NEC Corporation 2016
Profit/Loss Change (Year on Year) Results -7.6 Worsened due to a sales decline Public -3.2 Improved due to higher profitability in system construction services, despite a sales decline Enterprise +0.3 Telecom Carrier -4.5 System Platform -8.9 Worsened due to a sales decline Increased in costs Others -2.2 Adjustment -3.9-29.9 Worsened due to a sales decline and project lineup changes Worsened due to a sales decline 23 NEC Corporation 2016
International Revenue Results International Revenue Ratio The Americas 52.3 52.5 EMEA 26.3 26.3 Greater China, APAC 24 NEC Corporation 2016 23.1% 23.1% 22.8% 135.6 135.9 118.2 39.7 26.9 57.0 57.0 51.6 (J-GAAP) The Americas 7.7% EMEA 5.2% Revenue by Region Greater China, APAC 9.9% Revenue for, 518.7 Japan 77.2% *Revenue is classified by country or region based on customer locations.
Free Cash Flows 120.0 Worsening of loss before income taxes Results 100.0 80.0 80.9 80.9 60.0 40.0 92.5 92.5 73.8 63.7 20.0 0.0-20.0-11.6-11.6-10.1-40.0 (J-GAAP) 25 NEC Corporation 2016 Cash flows from operating activities Cash flows from investing activities Free cash flows
Financial Position Data Results End of March 2016 End of June 2016 Variance from end of March 2016 Total assets 2,528.9 2,332.4-196.5 Total equity 837.2 779.0-58.3 Interest-bearing debt 479.5 472.8-6.7 Equity attributable to owners of the parent 769.8 713.4-56.4 Ratio of equity attributable to owners of the parent (%) 30.4% 30.6% +0.1pt D/E ratio (times) 0.62 0.66-0.04pt Net D/E ratio (times) 0.37 0.34 +0.03pt Cash and cash equivalents 192.3 230.9 +38.6 26 NEC Corporation 2016
<Ref.> Statements of Financial Position (At the end of June 2016) Results Current Assets 1,266.6 Collection of trade and other receivables Noncurrent Assets 1,065.9-186.8-138.2-9.7 Total Assets 2,332.4 (-196.5 compared to end of March 2016) -58.3 Liabilities 1,553.5 Net Assets 779.0 Compared to end of March 2016 Decrease in trade and other payables, as well as accruals Payment of dividends and recording of net loss attributable to owners of the parent 27 NEC Corporation 2016
Business Environment Results The order trend for IT investment in services : 94% YoY IT services in Japan for, showed stable performance in manufacturing and financial areas, while it decreased in the retail and services areas IT Services Order Trend in Japan (by Quarter, YoY) 110% 116% 108% 105% Order 106% Order 94% 95% 94% FY15/3 Q2 Q3 Q4 Q2 Q3 Q4 28 NEC Corporation 2016
Financial Forecasts for (Appendix) 29 NEC Corporation 2016
Financial Forecasts by Segment (two-year transition) Revenue Profit/Loss Forecasts 2,821.2 2,824.8 2,880.0 107.3 91.4 100.0 Public 766.8 771.6 735.0 Enterprise 300.7 300.3 Telecom Carrier 698.9 697.5 305.0 705.0 System Platform 728.5 728.6 755.0 Others 326.2 326.8 380.0 Public 57.5 57.3 69.0 Enterprise 22.2 23.9 19.0 Telecom Carrier 45.6 46.5 48.0 System Platform 37.5 31.7 32.0-8.9 1.0 Others -18.2 Adjustment -46.7-69.0-49.8 (J-GAAP) Forecasts (J-GAAP) Forecasts 30 NEC Corporation 2016 *Forecasts as of July 29, 2016
Financial Forecasts by Segment Revenue Profit Forecasts Others 13% Public 26% Public 69.0 Telecom Carrier 48.0 Profit Forecast for 100.0 System Platform 26% Revenue Forecast for 2,880.0 Enterprise 11% Enterprise 19.0 System Platform 32.0 Telecom Carrier 24% Others 1.0 31 NEC Corporation 2016 *Forecasts as of July 29, 2016
Public Business Forecasts Billions of Yen (YoY) Revenue 766.8 771.6 735.0 YoY Revenue 735.0 (-4.7%) Decrease* due to a decline in the public areas, despite an increase of sales for the central government * Including transfer of certain business (Approx. -40 billion yen) -6.7% Profit Ratio Profit 57.5 57.3 7.5% 7.4% -4.7% 69.0 9.4% Profit 69.0 (+11.7) Improve due to a decrease in loss-making projects and cost reduction (J-GAAP) Forecasts *Forecasts as of July 29, 2016 32 NEC Corporation 2016
Enterprise Business Forecasts Billions of Yen (YoY) Revenue 300.7 300.3 305.0 YoY Revenue 305.0 (+1.6%) Increase in manufacturing industries +11.2% 22.2 Profit Ratio 7.4% Profit 23.9 8.0% +1.6% 19.0 6.2% Profit 19.0 (-4.9) Decrease due to project lineup changes and an investment increase in the IT services business for retail industries (J-GAAP) Forecasts *Forecasts as of July 29, 2016 33 NEC Corporation 2016
Telecom Carrier Business Forecasts Billions of Yen (YoY) Revenue 698.9 697.5 705.0 YoY Revenue 705.0 (+1.1%) Increase in TOMS and SDN/NFV in the international market Decrease in Japan -5.6% Profit +1.1% 45.6 46.5 48.0 Profit 48.0 (+1.5) Improve due to a sales increase Profit Ratio 6.5% 6.7% 6.8% (J-GAAP) Forecasts * TOMS:Telecom Operations & Management Solutions SDN:Software-Defined Networking NFV:Network Functions Virtualization *Forecasts as of July 29, 2016 34 NEC Corporation 2016
System Platform Business Revenue 728.5 728.6-0.0% Profit Ratio 37.5 5.2% Profit 755.0 +3.6% 31.7 32.0 4.4% 4.2% YoY Revenue 755.0 (+3.6%) Increase* in services and enterprise networks Profit 32.0 (+0.3) Forecasts Billions of Yen (YoY) * Including transfer of certain business (Approx. +10 billion yen) Remain flat due to project lineup changes, despite a sales increase (J-GAAP) Forecasts 35 NEC Corporation 2016 *Forecasts as of July 29, 2016
Others Forecasts Billions of Yen (YoY) YoY Revenue 380.0 (+16.3%) Revenue 326.2 326.8 380.0 +16.3% Increase due to expansion of international business while the energy business remains flat * Including transfer of certain business (Approx. +30 billion yen) -12.8% Profit 1.0 (+19.2) Profit Ratio Profit/ Loss 1.0 Move it into the black due to profit improvement in the energy business -2.7% -8.9-5.6% -18.2 0.3% (J-GAAP) Forecasts *Forecasts as of July 29, 2016 36 NEC Corporation 2016
Revenue Change (Year on Year) Forecasts Increase due to expansion of international business while the energy business remains flat Decrease due to a decline in the public areas, despite an increase of sales for the central government Increase in TOMS and SDN/NFV in the international market Decrease in Japan Enterprise +4.7 Telecom Carrier +7.5 System Platform +26.4 Others +53.2 Forecast 2,880.0 2,824.8 Public -36.6 Increase in manufacturing industries Increase in services and enterprise networks 37 NEC Corporation 2016 *Forecasts as of July 29, 2016
Profit Change (Year on Year) Decrease due to project lineup changes and an investment increase in the IT services business for retail industries 91.4 Public +11.7 Enterprise -4.9 Telecom Carrier +1.5 Improve due to a decrease in loss-making projects and cost reduction Improve due to a sales increase System Platform +0.3 Remain flat due to project lineup changes, despite a sales increase Others +19.2 Move it into the black due to profit improvement in the energy business Adjustment -19.2 Forecasts Increase in costs Forecast 100.0 38 NEC Corporation 2016 *Forecasts as of July 29, 2016
Net Profit Change (Year on Year) Forecasts Profit +8.6 Financial Income/Costs, etc. Decrease in tax expense through dissolution of a consolidated subsidiary (the previous fiscal year), etc. 75.9 Others +19.2 Public +11.7 Telecom Carrier +1.5 System Platform +0.3 Enterprise -4.9 Adjustment -19.2 Tax Expenses Forecast 50.0 39 NEC Corporation 2016 *Forecasts as of July 29, 2016
Capital Expenditure, Depreciation and R&D expenses Forecasts Capital Expenditure Depreciation R&D Expenses 45.0 44.9 50.5 50.0 % to Revenue 4.4% 4.4% 4.3% Public 7.1 7.1 1.4 1.4 Carrier 6.5 6.5 Enterprise Telecom 36.3 36.3 System Platform 7.3 7.3 Others 14.2 14.2 19.0 0.5 6.5 8.0 11.0 Public Enterprise 2.9 Telecom Carrier 43.9 System Platform 40.3 Others 21.8 124.0 123.6 125.0 15.1 (J-GAAP) Forecast (J-GAAP) Forecast (J-GAAP) Forecast *Forecasts as of July 29, 2016 40 NEC Corporation 2016
Reference 41 NEC Corporation 2016
Exchange Rate (Yen) 130 125 120 115 110 105 125 115 124.38 110.66 100 4/1 4/29 5/31 6/30 Dollar/Yen Exchange Rate (Actual) Dollar/Yen Assumed Exchange Rate Dollar/Yen Average Exchange Rate Euro/Yen Exchange Rate (Actual) Euro/Yen Assumed Exchange Rate Euro/Yen Average Exchage Rate 42 NEC Corporation 2016
Stock Price (Yen) 18,000 17,500 17,000 16,500 16,000 15,500 15,000 300 290 280 270 260 250 240 14,500 Apr 28 Full year earnings release Mid-term Management Plan 2018 Jun 22 Ordinary General Meeting of Shareholders 230 14,000 4/1 4/28 5/31 6/30 The Nikkei Stock Average NEC 220 43 NEC Corporation 2016
Cautionary Statement with Respect to Forward-Looking Statements This material contains forward-looking statements regarding estimations, forecasts, targets and plans in relation to the results of operations, financial conditions and other overall management of the NEC Group (the forward-looking statements ). The forward-looking statements are made based on information currently available to NEC and certain assumptions considered reasonable as of the date of this material. These determinations and assumptions are inherently subjective and uncertain. These forward-looking statements are not guarantees of future performance, and actual operating results may differ substantially due to a number of factors. The factors that may influence the operating results include, but are not limited to, the following: Effects of economic conditions, volatility in the markets generally, and fluctuations in foreign currency exchange and interest rate Trends and factors beyond the NEC Group s control and fluctuations in financial conditions and profits of the NEC Group that are caused by external factors Risks arising from acquisitions, business combinations and reorganizations, including the possibility that the expected benefits cannot be realized or that the transactions may result in unanticipated adverse consequences Developments in the NEC Group s alliances with strategic partners Effects of expanding the NEC Group s global business Risk that the NEC Group may fail to keep pace with rapid technological developments and changes in customer preferences Risk that the NEC Group may lose sales due to problems with the production process or due to its failure to adapt to demand fluctuations Defects in products and services Shortcomings in material procurement and increases in delivery cost Acquisition and protection of intellectual property rights necessary for the operation of business Risk that intellectual property licenses owned by third parties cannot be obtained and/or are discontinued Risk that the NEC Group may be exposed to unfavorable pricing environment due to intensified competition Risk that a major customer changes investment targets, reduces capital investment and/or reduces the value of transactions with the NEC Group Risk that the NEC Group may be unable to provide or facilitate payment arrangements (such as vendor financing) to its customers on terms acceptable to them or at all, or risk that the NEC Group s customers are unable to make payments on time, due to the customers financial difficulties or otherwise Risk that the NEC Group may experience a substantial loss of, or an inability to attract, talented personnel Risk that the NEC Group s ability to access the commercial paper market or other debt markets are adversely affected due to a downgrade in its credit rating Risk that the NEC Group may incur large costs and/or liabilities in relation to internal control, legal proceedings, laws and governmental policies, environmental laws and regulations, tax practice, information management, and human rights and working environment Consequences of natural and fire disasters Changes in methods, estimates and judgments that the NEC Group uses in applying its accounting policies Risk that the NEC Group may incur liabilities and losses in relation to its retirement benefit obligations The forward-looking statements contained in this material are based on information that NEC possesses as of the date hereof. New risks and uncertainties come up from time to time, and it is impossible for NEC to predict these events or how they may affect the NEC Group. NEC does not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Note: In this presentation, the accounting periods of the fiscal years for March 31, 2015 and 16 were referred as FY15/3 and respectively. Any other fiscal years would be referred similarly. 44 NEC Corporation 2016